Topic: | The Great Crash. 1929 | |
Posted by: | Michael Sterne | |
Date/Time: | 27/05/12 20:44:00 |
I recommend the depression deniers to read J K Galbraith’s seminal work. If you can’t be ar**d, there’s an excellent summary on Wikipedia (http://en.wikipedia.org/wiki/The_Great_Crash,_1929). A property bubble. Excessive speculation and a speculative bubble on the stock market. Interest rates lowered by the Fed. A dogma that “the markets know best” The depression that followed was caused by: 1. An imbalance in income distribution 2. A high reliance on leverage – hedge funds anyone? 3. The banking structure 4. Foreign trade imbalances 5. The poor state of economic intelligence Does anyone recognise the similarity with the great 2008 crash? Does anyone recognise any of these ingredients in our own great crash? The solutions tried by Herbert Hoover’s cabinet and by the Bank of England were very similar to those promoted by the deficit reducers today. They didn’t work then and they won’t work now. There’s far too much analogy with a household that has maxed out on it’s credit cards and far too little with a business that borrows to invest. We’re in recession because of a lack of demand in the economy. To grow out of recession we need to invest in infrastructure. There’s nothing wrong with investment. We need to create more jobs. As Thomas Barry has pointed out, when people lose their jobs they stop paying tax and start drawing benefit, making the deficit worse. “You can’t spend your way out of a deficit” is no more than a slogan and an economically illiterate slogan at that. For an example of what austerity leads to, look at Greece. For those who are interested in more than party political sloganizing I suggest you read the blogs of Nobel Prize winning economists, Paul Krugman and Joseph Stiglitz |